A children's special is sent from Coventry

A new way to save for children appeared on the financial services scene last week. Coventry building society launched Family 1st Benefit, an instant access product that pays a fixed 7.25 per cent on child benefit paid directly into the account.

A new way to save for children appeared on the financial services scene last week. Coventry building society launched Family 1st Benefit, an instant access product that pays a fixed 7.25 per cent on child benefit paid directly into the account.

Even in the second year, with a slightly reduced rate of 6.25 per cent, and a guarantee to match the Bank of England base rate in the third, it's likely to offer better returns than other deals.

If your child benefit goes into an ordinary current account with one of the "big four" banks - Barclays, Lloyds TSB, HSBC or NatWest - it may earn only 0.1 per cent interest.

It's a novel way to encourage parents to save, according to Rachel Thrussell at savings analyst Moneyfacts. "It is paying up to 2 per cent more than other accounts," she says. "But you will only [benefit] from this rate if you pay in your child benefit each month and keep it there. Unfortunately, many parents rely on this money to buy things for their children."

However, the product marks another step forward in the frenzied savings market, where intense competition has already spawned a range of accounts paying interest well above the 4.75 per cent base rate.

For an easy access account, some of the best rates are available over the internet, though watch out for bonuses that vanish later. Egg pays 5.5 per cent but drops its rate to 4.75 per cent after six months, while Northern Rock offers 5.41 per cent and this slides to 4.7 per cent half a year later.

Rates for branch-based accounts can be drastically lower. Abbey, for example, pays only 3.75 per cent.

If you are disciplined about saving, consider the Halifax's regular savings account, which pays 7 per cent. Be sure you can commit a monthly sum for 12 months here, or you could face tough penalties.

If you have not done so already, make sure you use up your individual savings account (ISA) allowance. You can put up to £3,000 into a mini cash ISA each financial year, tax free.

Abbey is currently paying 5.35 per cent on its no-notice postal account, while Alliance & Leicester is paying 5.4 per cent - but this no-notice account is available only over the telephone or internet.